Sorry for the long post, but I need to explain my situation. Years and years ago, I had a couple of information websites, let's call them site A and site B. Both are of a similar topic, but slightly different niche, and both were (at that time) leading sites in their own areas.
A couple of years ago, I decided to combine these two websites into the same website. Site A would now a large area, as it had a more generic domain name, while site B would remain more specific (if site A was 'car', then site B would be 'Ford', for example). It was done in a way that, if visitors were not paying attention to the URL, they would think they would be visiting the same single website as they travel across the two websites, and I made sure there was no duplication between the two websites. I also made no effort to hide the fact that these were now pretty much the same website, so they had the same design/template, same domain WHOIS info, both were in the same WMT, had the same Google Analytics account, etc...
Because site B's topics is less relevant these days, the website is updated much less than site A, with pretty much all the new stuff going on site A. And as you can imagine, there's a lot of cross linking between the two websites.
Site B was pandalized, lost about 60% of its traffic (and has been losing traffic steadily over the last couple of years). Site A was also hit, but not nearly as much. Site B has relatively few pages, and so I don't think it's a thin content problem (as otherwise, site A would have been hit much much more) - in fact, the wordy pages seems to get hit a lot more. But the wordy pages are also the most linked to usually, from site A, and I'm beginning to think that site B's link profile (that is, too many links from site A) is what's making things worse.
I've never really wanted to fully merge site B with site A, via 301 redirects, mainly because site B still has a large number of natural links, and it seemed like too much trouble at the time (I've had some bad experiences with redirects, as mentioned in some of my previous posts here). And site B is still very much a "brand" in its own right, in that people still refer to it by the same name that it had when it was a completely separate website.
A couple of questions:
1. It really has reached the point where there's not much to lose now for site B, so I was wondering if merging the website is now the right action?
2. Would Panda (or any other Google algorithm), punish site B (and A) for this kind of cross-domain linking (I had always imagined Google would have figured out these are sites in the same network and devalued the links accordingly)?
3. Could site B's lack of updates cause the steady de-ranking of its pages, and would moving these pages to a more active website help? The older, less updated pages on site A seems to be holding up a bit better than the same type of pages on site B.
4. And what would I lose, in terms of ranking, by moving the pages from site B to site A (all those natural links would then link to a redirect, as it would impossible now to have these links changed)?
Thanks in advance.